FE 61310 | Course Paper

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In contrast to residential mortgage loans, most fixed-rate commercial mortgages do not

allow borrowers to freely prepay the principal on their loan. Which of the following

prepayment penalties ties the penalty that borrowers pay to how far interest rates have

declined since origination?

A. Lockout provisions

B. Yield-maintenance agreements

C. Defeasance

D. Curtailment

Jeff owns 150 acres between a highway and a public beach. The state would like to

build a road directly from the highway to the beach across a number of beach front

properties including Jeff’s. The space for this road would be considered a(n):

A. implied easement

B. easement in gross.

C. negative easement appurtenant.

D. positive easement appurtenant.

A developer of a new townhome community has gathered the following market

information for University City. The developer estimates that there will be 1,200 home

(all types) sales in University City over the next year. An analysis of demographic

information has revealed that the core market share for the townhome project within the

community is 10%. Assuming a capture rate of 20%, what is the developer’s first year

projection of townhome sales in the new community?

A. 24 units

B. 120 units

C. 240 units

D. 600 units

If the lender has agreed to offer you a loan with a loan-to-value ratio of 85%, what is

the size of the loan if the purchase price of the home is $500,000?

A. $75,000

B. $400,000

C. $425,000

D. $588,235

Real estate professionals have long supported strict standards of ethics and practice.

Followed by all states and federal regulatory agencies, which of the following imposes

ethical obligations and minimum standards that must be followed by all real estate

professionals providing formal estimates of market value?

A. Uniform Standards of Professional Appraisal Practice (USPAP)

B. Multiple Listing Services (MLS)

C. Department of Housing and Urban Development (HUD)

D. Office of Federal Housing Enterprise Oversight (OFHEO)

Direct co-ownership implies that each co-owner holds a titled interest in the property,

but without exclusive possession with respect to the other co-owners. Which of the

following types of direct co-ownership is considered the closest to the fee simple

absolute estate?

A. Tenancy in common

B. Tenancy by the entirety

C. Condominium

D. Tenancy at Will

A tool used by real estate analysts to relate a consumer’s activities, interests, opinions,

and values to a consumer’s demographics is referred to as:

A. geographical information systems (GIS)

B. psychographics

C. survey research

D. census mapping

In some states, mining companies are deemed to own not only the minerals but also the

space the minerals occupied before they were removed, thereby earning the distinction

of ownership states. However, when the owner of an oil or gas well is able to claim all

that is pumped from it, regardless of whether the oil or gas migrated from adjacent

property, this is referred to as a _____________ state.

A. Manner of attachment

B. Law of capture

C. Intention of the parties

D. Relation of the parties

In using transaction data to determine the current value of the subject property, it is

important to recognize that general market conditions may have changed since a

particular transaction occurred. Property A sold 18 months ago for $235,000 and

Property B sold 12 months ago for $215,000. If the two properties are priced today at

$239,500 and $222,300, respectively, what is the average monthly rate of increase that

can be used to adjust comparable prices for changes in market conditions?

A. 0.09%

B. 0.17%

C. 0.19%

D. 0.32%

If the per share stock price of a REIT is greater than its per share net asset value (NAV),

the REIT is said to be selling at:

A. par value

B. a discount

C. a premium

D. an auction

Analysis of a subject property’s pro forma reveals that its fifth year net operating

income (NOI) is projected to be $100,282 (you can assume that this cash flow occurs at

the end of the year). If you estimate the projected rental growth rate for the property to

be 3% per year and the going-out capitalization rate in year five to be 10%, determine

the net sale proceeds the current owner of the property would receive if he were to sell

the property at the end of year five and incur selling expenses that amounted to

$58,300.

A. $944,520.00

B. $974,610.00

C. $1,002,820.00

D. $1,032,910.00

A recent trend in commercial leases is for tenants to negotiate a cap on the amount of

certain operating expenses they are required to reimburse the landlord. Such caps are

usually negotiated on operating expenses thought to be at least partially controllable by

the owner. Which of the following would typically be considered an operating expense

controllable by the owner?

A. General maintenance

B. Property taxes

C. Insurance payments

D. Utility expenses

Special assessments are levied to pay for specific improvements that benefit a particular

group of properties. All of the following characteristics of special assessments are true

EXCEPT:

A. They are considered ad valorem taxes.

B. They are applied as pro rata charges.

C. They are levied directly on the properties benefited.

D. They are commonly used to finance streets, storm water systems, sidewalks, and

other area improvements.

Given the following information regarding an income producing property, determine

the NPV using levered cash flows in your analysis. Required equity investment:

$270,000; Expected NOI for each of the next five years: $150,000; Debt Service for

each of the next five years: $125,000; Expected Holding Period: 5 years; Required yield

on levered cash flows: 15%; Expected Sale Price at end of Year 5: $2,000,000;

Expected Cost of Sale: $125,000; Expected Mortgage Balance at time of sale:

$1,500,000

A. $245.15

B. $270,245.15

C. $419,264.54

D. $1,435,029.64

As part of the data analysis step in the appraisal process, it is necessary to consider the

highest and best use of the property in question. In regards to determining highest and

best use, all of the following statements are true EXCEPT:

A. The proposed property use must be legally permissible

B. It must be physically possible for the property to be used in the manner specified.

C. No financial limits are considered when determining the property’s best use.

D. The property use must provide the greatest benefit to the owner.

Based on the following information, determine the location quotient for Amusement

City and whether this city has a competitive advantage in the amusement industry.

Employment in Amusements and Recreation in Amusement City: 54,446; Total

Employment in Amusement City: 578,477; Employment in Amusements and

Recreation (nationally): 1,381,377; Total Employment (nationally): 106,201,232.

A. 0.14; No, the city does not have a competitive advantage in this industry.

B. 7.24; No, the city does not have a competitive advantage in the industry

C. 0.14; Yes, the city has a competitive advantage in this industry

D. 7.24; Yes, the city has a competitive advantage in this industry

Providers of convenience activities find it profit-maximizing to disperse over the region

of potential customers to the point where each establishment is equidistant from another

and is separated by the minimum distance that allows sufficient customers to support

each establishment. The resulting pattern of establishment locations is referred to as:

A. central place pattern

B. clustering

C. concentric circle

D. multi-nuclei

Johnson Builders is in the new residential construction business. They built a house that

sat empty for 6 months after its completion. This type of property would be categorized

as a:

A. personal residence

B. dealer property

C. trade or business property

D. investment property

Using the following information, determine the location quotient for Motor City.

Employment in Motor Vehicle Manufacturing within Motor City: 12,643; Total

Employment in Motor City: 560,379; Employment in Motor Vehicle Manufacturing

(nationally): 152,750; Total Employment (nationally): 106,201,232

A. 0.1

B. 12.1

C. 15.7

D. 44.3

The distinction between legal title and equitable title is an important concept in the

contract for sale of real estate. When the buyer obtains equitable title, the seller can no

longer sell the property to someone else, even though the legal title has not officially

passed on. In the contract for sale process, the creation of equitable title occurs when:

A. The contract for sale is written.

B. The contract for sale is signed.

C. The contract terms are orally agreed upon.

D. Each party is deemed legally competent.

Given the following information, calculate the total annual tax liability of the

homeowner. Market value of property: $350,000, Assessed value of property: 40 % of

the market value, Exemptions: $2,000, Millage Rate: 33.95 mills.

A. $4,685.10

B. $4,753.00

C. $11, 882.50

D. $46,851.00

As of 2011, nearly 88% of private commercial real estate equity was owned by

“noninstitutional investors.” Which of the following investor categories represents the

most common form of noninstitutional ownership?

A. Pension funds

B. Sole proprietorship

C. “local” syndications and private equity funds

D. Life insurance companies

A common criticism of the annual percentage rate (APR) is that it usually understates

the true cost of borrowing. The APR may understate the cost of borrowing because it

assumes:

A. interest rates will always rise

B. the loan always goes to maturity

C. the actual life of the loan is shorter than maturity

D. upfront fees should be ignored

Suppose you are interested in taking an FHA mortgage loan for $350,000 in order to

purchase your principal residence. In order to do so, you must pay an additional

up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the

interest rate on the fully-amortizing mortgage loan is 6% and the term is 30 years and

the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion

of your monthly mortgage payment that is designated to cover the UFMIP?

A. $20.98

B. $291.67

C. $2,119.41

D. $3,500.00

The loan-to-value ratio measures the percentage of the acquisition price (or current

market value) encumbered by debt. To protect their invested capital in the event that

property values do fall, commercial mortgage lenders generally require that the senior

mortgage not exceed approximately what percentage of the acquisition costs?

A. 60%

B. 70%

C. 80%

D. 90%

After a structure is built, it is impractical for even a building expert to fully assess the

quality of the construction and the safety hazards it may harbor. This is an example of

which of the following problems that plagues private real estate markets?

A. Externalities

B. Incomplete information

C. Locational monopoly

D. Holdout

Given the following information regarding an income producing property, determine

the after tax internal rate of return (IRR). Expected Holding Period: 5 years; 1st year

Expected BTCF: $30,656; 2nd year Expected BTCF: $33,329; 3rd year Expected BTCF:

$36,082; 4th year Expected BTCF: $38,918; 5th year Expected BTCF: $41,839; 1st year

Expected Tax Liability: $7,645; 2nd year Expected Tax Liability: $8,658; 3rd year

Expected Tax Liability: $9,708; 4th year Expected Tax Liability: $10,798; 5th year

Expected Tax Liability: $6,951; Estimated Before Tax Equity Reversion at end of year

5: $343,674; Expected Taxes Due on Sale at end of year 5: $32,032; Required equity

investment: $241,163

A. 11.2%

B. 13.3%

C. 15.4%

D. 20.3%

While floating rate mortgage loans may offer lower interest rates to borrowers than

comparable fixed-payment mortgages, floating-rate loans may increase a lender’s

exposure to which of the following risks since borrowers may not be able to continue to

service the debt if payments on the loan increase significantly?

A. Default risk

B. Interest rate risk

C. Liquidity risk

D. Pipeline risk

Mortgage originators often offer many types and forms of available residential loans as

part of their mortgage menu. However, the predominant form of prime conventional

mortgage remains the:

A. (fixed-rate) level payment mortgage (LPM)

B. adjustable rate mortgage (ARM)

C. subprime mortgage

D. alt-A mortgage

An owner of land may involuntarily and unknowingly give up the rights to land. When

a fee simple interest is conveyed to a new owner without a deed and without the

consent or knowledge of the original owner, this is said to be conveyed by:

A. Prescription

B. Adverse possession

C. Accretion

D. Reliction

Favorable mortgage financing may have a significant impact on the transaction price of

the particular property. If the comparable property was known to have had favorable

financing terms negotiated into the transaction price, which of the following

adjustments should take place? (Note: Assume that the comparable property cannot be

dropped from the analysis as there are already limited comparable sales transactions)

A. The transaction price of the comparable property should be adjusted downward.

B. The transaction price of the comparable property should be adjusted upward.

C. The transaction price of the subject property should be adjusted downward.

D. The transaction price of the subject property should be adjusted upward.

While leasehold interests are considered estates, they differ from freehold estates in all

of the following respects EXCEPT:

A. Leasehold estates are limited in time.

B. The right of disposition is diminished with a leasehold estate.

C. Leasehold estates are not titled interests.

D. Leasehold estates are possessory interests